The concerted effort against Juul Labs by tobacco regulators is taking its toll, as the electronic cigarette maker's share of the market further eroded at the end of 2019. Where the JUUL device once had north of 80% of the market, it closed out 2019 with about a 60% share, still substantial to be sure, but a clear sign the campaign against it is having the desired effect. 

That should have Altria (NYSE:MO) investors wondering whether it will take another big writedown of its $12.8 billion investment in the e-cig maker. Although Altria just wrote off $4.5 billion worth of its 38% stake in Juul in the third quarter, the continued loss of market share and seemingly insurmountable hurdle Juul faces in navigating its premarket tobacco product application (PMTA) through the Food & Drug Administration's approval process suggests that won't be the last writedown.

Woman with vape pen

Image source: Getty Images.

A year to forget

Juul had a rough 2019. While the year started on a high note following the huge cash infusion it received from Altria in exchange for a piece of its market-leading business, the FDA quickly expressed frustration and anger at both companies, suggesting the investment was actually a sign the two were reneging on their commitment to reduce teen access to e-cigs.

It all seemed to go downhill from there. A health scare arose early in the year, with teens suffering from seizures; the FDA said it was investigating a link between them and e-cigs. The health scare rose to crisis proportions throughout the summer, and the regulatory agency began urging everyone to stop vaping altogether until it could determine what was causing the rising incidence of illness and several deaths.

Actually, the FDA seemed to have figured out early on that the link wasn't with vaping generally, or with so-called closed systems like Juul's where the e-liquids used to create a vapor are sealed at the manufacturer. Rather, it was in open systems where third-party suppliers could mix their own concoctions, and was a result of teens vaping THC, the psychoactive compound found in marijuana, that was being purchased off the internet. 

The illicit sources were using a chemical called vitamin E acetate that, while commonly used in food, apparently causes problems when heated in vaping systems. Thousands of cases of lung injuries and over 50 deaths were reported. 

Reversing e-cig's rise

Many people apparently listened. E-cig sales growth was cut in half while the decline in traditional cigarette sales moderated, suggesting people were quitting e-cigs and returning to combustible cigarettes.

Juul also came under scrutiny from the Federal Trade Commission over its alleged marketing to teens; the FDA proposed banning e-cig flavors, the source of most of Juul's sales (Juul voluntarily stopped manufacturing most flavors ahead of any ban), and major retailers stopped selling e-cigs.

As the undisputed market leader, Juul Labs bore the brunt of all of these actions, which can be seen in the collapse of its market share. It also gave Altria's rivals a chance to capitalize on Juul's many misfortunes.

Capitalizing on the forced errors

British American Tobacco's (NYSE:BTI) Vuse brand was able to grow its second-place position with an 18.1% share of the market, a near-85% year-over-year gain, while privately held NJOY surged into third place with a 14.4% share on a massive 1,207% jump from the year-ago period. That rise, however, was fueled by a significant discounting policy, which was used precisely to steal customers from the competition, and which seems to have worked well. 

The December market report by analysts at Cowen & Co. also marked the sixth consecutive time that Juul's share fell. It does not bode well for the e-cig maker that must now face FDA approval for its e-cig device.

The next painful accounting

Former FDA Commissioner Scott Gottlieb has already expressed doubts about Juul's ability to make it through the labyrinthine process, and more recently told CNBC, "It could be that this product can't exist on the market anymore."

Whether his opinion carries any sway with the current FDA leadership is unknown, but what's obvious is that Juul's value to Altria continues to diminish. While the tobacco giant has a backup plan in place -- it is rolling out nationally Philip Morris International's IQOS heated tobacco device, which could come to own the e-cig market -- it seems certain another dramatic writedown is coming.

That probably won't be when Altria reports fourth-quarter results, since it did just write off a huge chunk a few months ago. Yet it wouldn't be surprising to see another writedown happen before 2020 closes, one that may be even bigger than before.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.